Reader Ray Allan asks for a bit more information about Lion’s Versions feature. He writes:
I understand that I can save multiple versions of files I create in Lion’s TextEdit. Are versions created automatically or do I have to save a version? And if I transfer one of these documents to another Mac, will I be able to browse its versions on that Mac?
Taking each question in turn, every time you open a document, the current version of that document is saved. Additionally, Lion’s Auto Save feature will save a version every hour (provided the host application is open, of course). You can create additional versions by pressing Command-S or choosing Save a Version from the File menu.
As for transferring documents, no, you can’t move files to another Mac and expect their versions to travel with them. Versions are not embedded in the documents. Rather, they’re stored in a hidden directory at the root level of your hard drive called .DocumentRevisions-V100. The application then references the versions in this folder when called upon to do so. The versions of your document are missing on the Mac you've copied the document to, so no versions are available.
You needn’t worry that this hidden folder will become bloated with dozens of fat files. Lion saves only the changes to a document rather than multiple versions of the entire document.